Should Tesla Embrace Billion-Dollar Advertising to Offset Price Cuts and Boost Sales?

Electric vehicle giant Tesla, a favorite of many, is facing investor pressure to consider billion-dollar advertising as a means to drive growth. Chicago fund manager Gary Black, known for his support of Tesla, believes that the company’s strategy of slashing prices to boost sales may not be sustainable.

Black, who has consistently held Tesla as one of his top two investments since 2021, argues that as Tesla’s unit sales growth has slowed and the awaited launch of the Cybertruck remains on the horizon, it’s time for the company to reconsider its aversion to major media campaigns, including advertising.

This call for a change in strategy is not coming from one person alone. An online poll conducted by @TroyTeslike, an active Tesla enthusiast on social media, found that half of over 8,000 respondents felt that Tesla should start advertising, surpassing other strategies like price cuts and adding technology to high-end Model S and Model X.

This investor pressure to rethink the strategy is not entirely new. At Tesla’s annual shareholder meeting last May, a shareholder questioned CEO Elon Musk about why the company was not advertising when its price cuts amounted to a significant budget. Musk acknowledged the point, expressing openness to trying advertising to promote Tesla’s features and advantages.

However, despite this apparent openness to advertising, Tesla has not significantly invested in online and social advertising. Price cuts continue to be the primary strategy to generate interest in Tesla vehicles.

Tesla has followed a cost-cutting-first approach, aiming to make electric transportation accessible to the mass market. While this has led to price reductions of about 20% on most Tesla models since August 2022, these price cuts are starting to add up. The most recent round of price cuts alone is estimated to cost Tesla $2 billion annually.

Black’s argument is that Tesla should balance price cuts with advertising to effectively communicate features like the falling cost of electric vehicles and safety features through advertising. This is particularly crucial considering that Tesla’s stock, while showing growth this year, remains below its 2021 peak and trails the S&P 500.

Tesla’s U.S. market share among electric vehicles has also been slipping, despite continued price reductions. Even with price cuts, Tesla’s gross margins have decreased, potentially affecting the company’s profitability.

An effective Tesla advertising campaign could emphasize not only safety but also performance, luxury, and environmental benefits. Competing with seasoned marketing players like Ford and General Motors in the electric vehicle space, Tesla might need to rethink its marketing approach.

While Musk has previously been hesitant about advertising, given the current competitive landscape, a well-planned and targeted advertising campaign could help Tesla showcase its unique advantages and sustain its luxury brand image.

As Tesla continues to grow and reach full scale, it’s crucial to explore whether advertising can be a valuable addition to its strategy. Even Musk, known for his reluctance to advertise, has hinted at the potential benefits of advertising in promoting Tesla’s products and advantages.

In summary, as Tesla faces mounting investor pressure to consider advertising as a strategy, the company may need to adapt to changing market dynamics and explore new ways to connect with consumers and drive sales growth.